• Bank Negara Malaysia’s (BNM) international reserves stood at US$102.8 billion as at May 15, 2019 from US$103.4 billion at April 30, 2019 • Tekun Nasional has channelled business financing worth RM140 million since the beginning of this year until April 30, 2019 • Malaysia's labour productivity grows 2.4 per cent in Q1 2019 • Malaysia's CPI rose 0.2 per cent in April 2019 to 121.1 compared to 120.9 in the same month of the preceding year: Department of Statistics Malaysia

Property slowdown beckons as next risk for emerging markets
Thursday, May 16th, 2019
at , Property | World

Thailand, Dubai, Turkey and Brazil are facing trouble spots

by MICHELLE JAMRISKO / pic by BLOOMBERG

AS GROWTH worries and trade war jitters threaten to spoil any rebound for emerging markets in 2019, property markets are shaping up as a critical element to monitor for further signs of gloom.

Some developing economies from Thailand, to Dubai and Brazil are facing double-digit real estate sales declines on the back of weakening domestic growth. Developed countries already have shown some of the pain — including Australia, the UK, Switzerland and Singapore — and made all the more worrisome as borrowing costs remain relatively low.

“There are different factors driving the various markets; real estate tends to be to a large extent a localised market,” said Todd Schubert, head of fixed-income research at Bank of Singapore Ltd. “However, the one over-riding theme is decelerating economic growth momentum, which is continuing to be a headwind for all markets and preventing a recovery in markets, such as Dubai, which have faced multi-year downturns.”

China.New-home price growth in China snapped a four-month weakening streak, one of the first official signs there may be a widespread recovery in the nation’s housing market.

The recovery has been more evident in Tier 2 and Tier 3 cities, where local governments have increasingly sought to use so-called stealth easing to offset reduced support from shanty-town renovation projects. Investors also are assessing the impact of recent high-profile financial troubles among some Chinese real estate entities including Citic Guoan Group Co Ltd and Goocoo Investment Co Ltd.

Colliers says in a 4Q report that it sees new Thai condominiums falling by 24% this year as unsold properties pile up

Thailand.The Bank of Thailand issued plans in October to impose stricter mortgage-lending rules in 2019 as the officials saw a frothy housing market ahead. That’s already kept residential development plans in check, with an increasingly gloomy global growth picture weighing now also.

Colliers International said in a fourth-quarter (4Q) report that it sees new condominiums falling by 24% this year as unsold properties pile up, while Bloomberg Economics sees Chinese investor interest keeping a floor under demand.

Indonesia. The property market in SouthEast Asia’s biggest economy is in a funk, with residential property sales contracting 5.78% in the 4Q compared to the previous three months, according to central bank data.

Fitch Ratings has cited rising interest rates, currency volatility, weak commodity prices and looming elections as weights on first-half demand. In an April 24 report, Fitch said postelection uncertainty would likely have “minimal impact in the medium term on infrastructure execution and contractors’ profitability”, with the 2019 budget prioritising such development.

India. India’s top seven cities recorded 12% increase in home sales and 27% jump in residential launches during the 1Q, according to Anarock Property Consultants.

While the sector was hit by a liquidity crisis late last year, government measures including a reduction in the Goods and Services Tax and central bank interest-rate cuts boosted sales and launches in the March quarter. Investor confidence was rocked last year by a series of defaults at IL&FS Group, which pushed up costs for borrowers, including builders looking to refinance debt that fuelled a construction boom.

EMEA

An oil-price slump, fiscal austerity in Saudi Arabia and a strong dollar have driven away potential buyers in Dubai

Dubai. An oil-price slump, fiscal austerity in Saudi Arabia and a strong dollar have driven away potential buyers in Dubai. The government’s Land Department has been focusing on promoting Dubai’s real estate to investors abroad, mostly in the US, UK, China, India and Russia, and last year announced a long-term visa programme meant to help boost property demand.

Residential property prices in Dubai are set to decline by less than 10% this year, after sliding about 25% from the 2014 peak, said Craig Plumb, the head of Middle East research at broker Jones Lang LaSalle.

Poland. Record-low unemployment and fast wage gains, together with record-low interest rates, also spur demand for houses, with sales at a record high in Poland last year. That’s bringing residential property investment funds to a roaring market that used to be mostly retail-oriented.

Poland’s relatively low debt and modest fiscal deficit are giving the government room to support the economy, allowing for real estate there to be especially attractive against its neighbours, said Sebastian Zilles, a Londonbased fund manager at Pacific Investment Management Co LLC.

Russia. Russia’s residential construction is on a three-year losing streak, and regulations from July 1 that will require builders to keep money earned from pre-sales of apartments in escrow add one more hurdle.

The sector has stalled despite a boom in the mortgage market, which grew by nearly half in 2018 as rates fell to historic lows. While the state mortgage development institution DOM.RF forecasts continued lending growth and sees no signs of a bubble, a low base means that housing loans won’t save developers from their prolonged slump.

Turkey. Turkey’s property market, hit by rising borrowing costs following the August currency crash, is one of the biggest losers of Europe, the Middle East and Africa (EMEA) region in 2018.

Home prices rose 7.6% in the year through January, the slowest annual increase in central bank data back to 2011. When adjusted for inflation, home prices fell by over 10%. Even amid the real decline in home prices, sales during the first two months of the year dropped by one-fifth from a year earlier, according to official data released by Turkstat.

South Africa. South Africa’s mortgage market looks to have started 2019 on very weak footing, with the value of new mortgage loans having plunged in the 3Q from a year earlier, according to central bank data. Growth is likely to remain weak until at least after the 2019 elections amid souring business and consumer sentiment and concerns over policy direction, including on land expropriation without compensation.

Latin America

Brazil. For Brazil, the fresh government of President Jair Bolsonaro hasn’t yet been able to deliver on high hopes for a real estate turnaround.

Housing prices in Sao Paulo, the most-populous state, grew at an annual pace of 2% in February, compared to less than 1% a year ago, according to an index by FipeZap. That’s still far below the double-digit growth levels seen in 2014 before the economy went into recession.

Construction is signalling an earlier than expected recovery, according to BBVA research. Interest in cheap Mexican real estate remains strong, and home prices across the country rose over the course of last year, according to the most recent available data from Mexico’s Federal Mortgage Co. — Bloomberg